Archive for the ‘Business Auto’ Category

Coverage for a serious risk

It’s a must for most sports and recreation organizations to carry Non-owned and Hired Auto Liability insurance, which can be a stand alone policy or part of the General Liability policy. Very few sports administrators understand the importance of this coverage and what they should be doing to protect their insurance carrier from ever having to pay a claim.

A non-owned auto is one that is not owned by the sports or recreation organization, but is instead owned by an employee or volunteer or borrowed from an organization such as a church. If a non-owned vehicle is involved in an accident while on association business, the following parties can normally be sued: the vehicle owner, the driver, and any organization for whose purpose the errand is being run. In other words, the sports organization can be sued for their vicarious liability of their staff member.

Its important to note that Non-owned Auto Liability insurance does not cover the driver or damage to the vehicle. It only covers the association that is the named insured on the policy. The driver will have to rely on his or her own Personal Auto Insurance olicy to provide liability and physical damage protection.

I came across some excellent loss control material from Philadelphia Insurance Company on the topic of controlling the Non-owned Auto Liability risk in the sports and recreation context. This exposure represents an infrequent but high severity risk where damages can easily exceed $1 million. The insurance carriers that insure sports and recreation organizations are concerned about this exposure because it’s difficult to collect the proper premium for a low frequency/high severity risk. Sports organizations need to take this risk very seriously and implement the recommended controls.

Auto accidents and related lawsuits represent a high severity potential for sports and recreation organizations. Therefore, a Business Auto policy should be given serious consideration.

A Business or Commercial Auto policy should be written to cover every owned, non-owned, and hired autos of the sports or recreation organization. An owned auto is one that is titled in the name of the sports or recreation organization. A non-owned auto is one that is owned by an employee or staff member but used to run errands or make trips on behalf of the organization. A hired auto is one that is rented from a car rental company or borrowed.

Owned Autos

Each state’s financial responsibility laws set minimum insurance requirements for owned vehicles. Most require the owner of the vehicle to provide proof of Auto Liability in an amount of $30,000 per person, $60,000 per accident, and $25,000 property damage. Some states require higher limits. In addition, many require Uninsured Motorists and Personal Injury Protection/Medical Payments (no fault) coverage.

These minimum insurance limits are too low to cover damages incurred from an auto accident resulting in moderate to serious bodily injury or property damage. For this reason, it is strongly recommended that sport organizations carry limits that are significantly higher than the minimum state requirements. Below are the typical coverages and limits that should be carried on owned autos:

Auto Liability: $1million Combined Single Limits. Auto Liability pays for bodily injury and property damage claims from injured third parties, such as passengers pedestrians, and damage to other vehicles, Since auto accidents tend to result in serious injuries to multiple passengers, it doesn’t make sense to carry a limit lower than $1 million. If available, combined single limits are preferred since combined single limits offers more flexibility in the allocation between bodily injury and property damage and multiple injured persons.

Uninsured Motorists: $1 million. Uninsured Motorists reimburses bodily injury and/or property damage when the fault is that of an uninsured driver. The Uninsured Motorist limit will reimburse the insured for the amount that the insured is legally entitled to recover if the negligent party had carried insurance. It is recommended that the Uninsured Motorist limit should match the Auto Liability limit.

Underinsured Motorists: $1 million. Underinsured Motorists for bodily injury and/or property damage when an underinsured motorist is at fault. The Underinsured Motorist limit will reimburse the insured for the amount that the insured is legally entitled to recover had the negligent party carried insurance. It is recommended that the Underinsured Motorist limit should match the Auto Liability limit.

Personal Injury Protection/Medical Payments (no fault): $2,500. Personal Injury Protection or Medical Payments compensates the injured insureds for medical expenses, lost wages, etc. without regard to fault. Many states mandate a minimum limit, but higher limits may be purchased of an additional premium charge.

Collision: Actual Cash Value of Auto. This pays for damage to the covered auto in the event of a collision with another object or a rollover.

Comprehensive: Actual Cash Value of Auto. This pays for damage to the covered auto caused by anything other than a collision.

Note: Many states have versions of no-fault coverage, a discussion of which is beyond the scope of this article. In addition, a discussion of other, less important coverages such as Towing and Labor and Rental Reimbursement has been omitted.

Non-owned and Hired Autos

A sports or recreation organization can be vicariously liable for auto accidents resulting from non-owned vehicles owned by employees or volunteer staff used to run errands on behalf of the organization. Non-owned Auto Liability coverage protects the sports organization but not the individual driver, who would need to look to his or her own Personal Auto Policy for protection.

A sports or recreation organization and its driver can be liable for auto accidents resulting from the use of rented or borrowed (ex: church van) vehicles. Hired Auto Liability coverage protects both the sports organization and its authorized driver while using such vehicles on official sports organization business.

Many insurance carriers in the sports and recreation niche are reluctant to provide Non-owned and Hired Auto Liability for member insurance programs. This is due to the severity risk of a serious auto accident involving multiple injuries and high medical bills. The risk is even more difficult to underwrite because most sports organizations don’t run motor vehicle record checks on its drivers or provide driver training.

It is customary for insurance carriers to attempt to control the severity risk under Non-Owned and Hired Auto Liability by excluding the use of 15-passenger vans from coverage and limiting coverage for the transportation of participants. Both of these areas represent a significant severity risk due to the possibility of serious injuries to multiple passengers.

It’s important to note that Hired Auto Liability does not extend physical damage coverage (comprehensive or collision) to the vehicle itself. As a result, separate coverage arrangements must be made either through the purchase of Hired Car Physical Damage from the insurance carrier or through the Collision Damage Waiver from the rental car company. This matter is also complicated by the possible availability of similar coverage when using certain credit cards for payment of a rented vehicle. The decision on the best way to insure the physical damage exposure for rented vehicles is a complicated matter and beyond the scope of this article. An insurance agent should be consulted prior to renting a vehicle.

This article is a follow up to a prior posting entitled “Are Athletes at Risk in Chartered Buses?” which exposed the dangers and possible liability risks of hiring a charter bus service without running a background check.

MSNBC reports that at least 20 of the approximately 220 commercial bus companies that were fined and ordered to shut down are still running along the highways and byways. Investigators say the companies stayed on the road using different names after being ordered shut down for violations that range from suspended licenses to drug use.

What is and isn’t covered

Sports organizations occasionally rent vehicles for transporting athletes to out-of-town games and tournaments or officers to travel out of state on business. If a Non-owned and Hired Auto Liability policy is in place, it will not respond to damage to the rented vehicle itself.

There are three options available for insuring damage to the rental vehicle:

Purchase Collision Damage Waiver from the rental car company. This is the safest course of action to follow as it will often pay for 100 percent of the damages. The cost of this coverage typically ranges from $15 to $30 a day.

Purchase Hired Car Physical Damage from the sports organization’s insurance agent. Coverage typically costs $250 per year. However, this policy will not pay the following damages that are triggered by many rental car contracts:

The difference between actual cash value and replacement cost in the event the vehicle is totaled.

Loss of profits to the rental car company while the vehicle is out of the fleet being repaired.

It’s your responsibility to find out

A recent report by ESPN indicates that charter bus safety is an issue for college athletes who are being transported to competitions. Due to the propensity for tipping over and structural integrity problems of 15-passenger van, college athletics departments began using charter buses more frequently in recent years. Charter buses are statistically safer than 15-passenger vans, but the number of bus crashes climbed from 8,555 in 2003 to 13,195 in 2007. Over this five year period, there were 1,651 fatalities.

Most athletic department administrators hire charter buses on the basis of price and availability, rarely paying attention to safety records. However, experts recommend that safety records be given top priority All athletic departments should refer to the Federal Motor Carrier Safety Administration website and click on “search company safety records.” The safety record of a charter bus service can be referenced if you know their DOT number.

ESPN’s “Outside the Lines” study for the time period 2007-2008 found that almost one-third of NCAA Division I schools used charter bus services that had one or more deficiencies in federal safety scores. Of these 85 schools, approximately 35 used companies with an overall safety rating of “conditional” which is one step under “satisfactory.” The U.S. DOT ratings range from “satisfactory” to “conditional” to “unsatisfactory”. These ratings are issued based on drug testing, recordkeeping, bus maintenance, and driver qualifications. It is recommended that a charter bus service should not be hired unless it has a rating of “satisfactory.”

Another commonly used test of safety is the SafeStat score, which focuses on both drivers and vehicles based on tickets, accidents, and violations found during roadside inspections. A score 75 or above is considered deficient.

It is my opinion that potential legal liability exists for athletic departments that subcontract out their transportation to charter bus services without first checking their safety record to verify adequacy.

What’s covered and what’s not

When vehicles in use for business pertaining to a sports organization are involved in an accident where the passengers or other third parties are injured, the sports organization may be vicariously liable. This means they can be included in any lawsuits arising out of the accident. Injured parties often seek out the sports organization as a deep pocket when the owner of the vehicle is uninsured or underinsured.

This is why sports organizations need Non-owned and Hired Auto Liability to cover their liability arising out of the use of vehicles that are not titled to the sports organization.

A non-owned auto is an auto that is not owned by the sports organization but is instead owned by an employee or volunteer who runs errands or transports participants at the direction of an authorized league official. Sports organizations benefit from the use of non-owned vehicles.

Non-owned Auto Liability covers the sports organization itself but does not normally cover the individual vehicle owner or driver. Individual vehicle owners or drivers must look towards their own Personal Auto Policy for coverage.

A hired auto is either borrowed (ex: church van or school bus) or leased from a rental car company. Hired Auto Liability protects both the sports organization and driver from liability arising from an auto accident when a vehicle is borrowed or leased. It is important to note that Hired Auto Liability does not provide any coverage for damage to the rental vehicle itself.

Non-owned and Hired Auto Liability can be obtained on either a Business Auto policy or a General Liability policy. However, the insurance carriers are reluctant to write these coverages for sports organizations due to the potential for high severity and the fact that sports organizations typically don’t implement loss control protections.

Basic loss control protections include driver screening by obtaining acceptable Motor Vehicle Reports and requiring that employees provide evidence that they carry a Personal Auto Policy with limits of at least $300,000 combined single limits. In addition, many insurance carriers are reluctant to extend coverage on the rental of 15-passenger vans due to their documented propensity for tipping over.

The actual policy language must be carefully reviewed for these restrictions.